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Lack of Preparation for New Retirement Age in Korean Private Sector
Unprepared for Retirement
Lack of Preparation for New Retirement Age in Korean Private Sector
  • By matthew
  • August 27, 2014, 07:11
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The official retirement age will be raised from 55 to 60 in one year and four months, but Korean companies are still ill-prepared to deal with the change. Among corporations with more than 300 employees, only 23 percent have completed their new policies for retirement at 60. Furthermore, institutional improvements, including salary restructuring, which have to proceed the extended age limit of retirement, are at a standstill due to conflicts between employees and management and a lack of a strong company policy. If nothing changes by the time the regulation begins, chaos is expected in the industrial field.

According to the Ministry of Employment and Labor on August 25, the Act on Prohibition of Age Discrimination in Employment and Elderly Employment Promotion requires private companies, public organizations, and local public corporations with more than 300 employees to set the retirement age to 60 starting in 2016. In 2017, other companies as well as national and local governments will have to adopt the new age as well.

However, based on a survey of the Ministry of Employment and Labor, only 350 out of a total of 1,544 companies with over 300 employees that have a mandatory retirement system, or only 22.8 percent, have already set the retirement age to 60. Surveys by Seoul Economic News and Job Korea, which were done last July, showed similar results with 26.5 percent. Also, three out of four big corporations have not yet extended the retirement age limit to 60. If this trend continues, most Korean companies will be forced to set the retirement age to 60 by law in 2016 without any preemptive preparations.

A more serious problem is that no institutional improvements have actually been made yet. Most Korean companies have a seniority-based wage system in which the longer you work, the more you get paid. If retirement is delayed, labor costs also increase accordingly due to an increasing portion of older employees. This might hurt the profits of companies or decrease the employment of younger workers, so a peak salary system (in which salary diminishes upon reaching a certain age) is considered to be the essential policy to deal with retirement at 60. However, it is very hard to reach an agreement between employees and management, as the labor world strongly opposes the peak salary system. In addition, what types of work would be assigned to employees over the age of 55 has not yet been considered, either.